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Executive Summary
Reasons for publication
Directive 2014/65/EU1 (MiFID II) and Regulation (EU) No 600/20142 (MiFIR) provide for a number of
review reports requiring the European Commission (EC), after consulting ESMA, to present reports to
the European Parliament and the Council on various provisions. This consultation paper (CP) covers
the review provision on the impact of requirements regarding algorithmic trading including
high-frequency algorithmic trading set out under Article 90(1)(c) of MiFID II.
Contents
Many provisions and requirements of MiFID II relate either directly or indirectly (e.g. direct
electronic access or tick sizes) to algorithmic trading. This consultation paper
therefore adopts a holistic approach to algorithmic trading and reviews all related provisions
together with the aim of having the current framework operating more efficiently.
Section 2 provides an introduction to the report. Section 3 presents an overall approach towards
algorithmic trading and high frequency trading and in particular the authorisation regime attached
to these types of market participants, together with some quantitative analysis. Section
4 discusses the organisational requirements for investment firms that engage in
algorithmic trading, including high-frequency traders. Section 5 focusses on the organisational
requirements for trading venues that enable algorithmic trading on their systems.
Finally, Section 6 addresses the other provisions that aim at better framing the activity of
algorithmic and high-frequency traders such as tick sizes and market making, while also discussing
new issues which have recently emerged on EU markets and are very closely linked to algorithmic
trading, such as the deployment of mechanisms called speedbumps and the sequence of trade
confirmation to individual participants by trading venues versus the public disclosure of such
transactions.
Next Steps
ESMA will consider the feedback it receives to this consultation and expects to publish a final
report and submit it to the European Commission by July 2021.
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ESMA invites comments on all matters in this paper and in particular on the specific questions summarised in Annex 1. Comments are most helpful if they:
• respond to the question stated;
• indicate the specific question to which the comment relates;
• contain a clear rationale; and
• describe any alternatives ESMA should consider.
ESMA will consider all comments received by 12 March 2021.
All contributions should be submitted online at www.esma.europa.eu under the heading ‘Your input - Consultations’.
Publication of responses
All contributions received will be published following the close of the consultation, unless you request otherwise. Please clearly and prominently indicate in your submission any part you do not wish to be publicly disclosed. A standard confidentiality statement in an email message will not be treated as a request for non-disclosure. A confidential response may be requested from us in accordance with ESMA’s rules on access to documents. We may consult you if we receive such a request. Any decision we make not to disclose the response is reviewable by ESMA’s Board of Appeal and the European Ombudsman.